Ranking sessions, labels, long-winded appraisals, and conversations that focus on your past are obsolete at Adobe Last year we abolished our annual performance review in favor of lighter-weight check-in conversations that center on ongoing feedback. We don’t have labels, a formal tool, or prescriptive time of year it all has to happen—we just ask people to have conversations.

The result? Morris reports that Adobe's seeing "more genuine conversations" at the company, lowering attrition, and most notably, a saving of 80,000 hours of managers' time a year—which represents a whole lot of freed up mental real estate.

But many still stick to what, for Morris, is an "archaic process." As New York Times columnist Phyllis Korkki notes:

Many businesses feel that they must use formal reviews and rankings to create an objective measurement of performance and goals, so that managers can reward and promote good employees, and give poorly performing ones a chance to improve (while creating a paper trail in case they must be dismissed).

The reviews can take on extreme importance. Jack Welch, the affably dictatorial former chief executive of GE, maintained that employees should be lined up along a three-piece bell curve: the top 20% would get rewarded, the middle 70% would be told how to improve, and the bottom 10% would be discarded. This is called forced or stack ranking; according to an in-depth Vanity Fair report, it's the system that "crippled" Microsofts ability to innovate.

"I wanted to build a team of people who would work together and whose only focus would be on making great software," said Bill Hill, a former manager. "But you can’t do that at Microsoft."

But it's not that the annual performance review is going to cripple every company; only if they're terrible. It's a matter of the contents, context, and subsequent incentives of the review, as No Asshole Rule author and managerial connoisseur Bob Suttoncontends. So allow us to review how performance reviews go wrong.

If the performance review is "this weird form you fill out every year that has nothing to do with everyday life," then your organization is doing it wrong, Sutton says; like if your boss gives you good feedback (or no feedback) all year and then drops a bad a review on you. When you receive such an unwelcome surprise, Sutton says, "the boss isn't doing his or her job."

If "excellent performance" is overly individualistic, then you may be turning your office into a terrarium of reptilian behavior. If "stars" are anointed solely on individual achievement, Sutton says, then you get "backstabbing, stomping on others on the way to the top, and other flavors of dysfunctional internal competition" as a reward.

The solution: Make your definition of excellence more prosocial, and encourage teamwork.

Vanity Fair reporter Kurt Eichenwald said that every current and former Microsoft employee he talked to identified stack ranking as the "most destructive process" inside Microsoft.

"If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review," said a former software developer. "It leads to employees focusing on competing with each other rather than competing with other companies."

Consequently, star employees wouldn't want to work with one another, for fear of getting bumped into a lower demographic. This is stupid not only because it hampers innovation, but also for the assumption it makes: that there will be one terrible performer on every team.

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This “drudge”task is a great opportunity to ensure that the organization is “on the same page” regarding the critical few things we should be focused on. And there may be opportunities for “hidden benefits” …

Performance reviews are a necessary process in business, but what review process works best for a company is dependent upon the culture of the organization. However, any day of the week would recommend managers sitting down with their employees throughout the year and not making reviews a formality at the end of the year. As Brian said, the forced distribution/stacked ranking can be detrimental to an organization. That is a process that I would never recommend to a client that asks me for advice when revamping their review process. It can be misleading and unfair.

Donna provides some great insights here. As Brian observed in his comments, there is definitely a right and wrong way to manage the performance review process. We just completed a study on employee engagement, and we found that the performance review, as a tool to nurture engagement, is used equally by companies with high and low levels of engagement. Clearly, it's not the mere presence of the review process that matters. In fact, a poor review process is damaging! But when the process is thoughtful, intentional and genuine and can work very well, helping nurture employee engagement, which provides even greater benefits: revenue growth, customer loyalty and better profit margins. Organizations need a vision for performance reviews (and employee engagement) as a strategic process that creates a competitive advantage, not as an administrative necessity to keep HR off your back.

In performance review politics plays a greater role. An effective hard working employee can get ignored because the employee is not a boss kisser. This could happen if employee is hired by the superior or by the privious boss and in this process employee has to make the choices either to move on or stay same place for personal reason and if employee stays with the company because of vested interest and personal reason the organisation can suffer in a long run for not utilizing the employee talent.This is important for the management to observe such an activity in the company

Agree completely. At iCrossing we started using a communications tool for ongoing interaction and commenting among teams, managers, etc. Very "social" and engaging and links to company and individual goals. Used to be called "Rypple" but was bought by SalesForce and now called "work.com". I'm not connected in any way to them, just a satisfied user...

While I believe performance reviews are necessary and important, there is a right and wrong way to do them. Sounds like one of the companies in this article may have thrown out the baby with the bath water...

"Stacked ranking" or "forced distribution" is definitely the wrong way - I've seen it do damage to a company's culture.